Service sector 'subdued' but Scots manufacturers upbeat

Published on Friday 10 December 2010 21:57

FALLING orders struck a further blow to Scotland's key service sector last month, with a report published today warning the economy remains "subdued".

Firms operating in the travel, tourism and leisure sectors were worst-hit by the fall in business activity, while business service firms reported a "marginal drop", according to the Bank of Scotland's purchasing managers' index (PMI) survey.

The overall PMI fell modestly from 49.9 in October to 49.5 last month, with any reading below 50 indicating a deterioration in conditions.

But Scotland's manufacturers sounded an upbeat note for the economy by posting their strongest rise in output since August.

Bank of Scotland noted a particularly strong rise in new export orders, with manufacturers reporting the first monthly rise in new order levels for three months.

The United States and China were among the "key drivers" for exports.

Donald MacRae, the bank's chief economist, said the rise provided evidence that an export-led recovery was under way.

"While the latest PMI isn't as positive as hoped for, these results indicate the Scottish economy is avoiding a 'double dip' and experiencing low growth rather than negative growth," he said.

MacRae noted Scotland's financial services sector - which came under pressure during the banking crisis - recorded a "modest" rise in activity, building on October's increase.

Survey respondents indicated that subdued demand and adverse weather - even before last week's snow and ice - had led to a modest drop in the volume of incoming new business received in November.

About 600 manufacturing and service sector firms took part in the Bank of Scotland survey, which was conducted alongside financial information firm Markit.

The PMI data also highlighted a further rise in average costs faced by private sector firms.

Although inflation was weaker in November than October, it was stronger than both the one-year and long-run series averages. Higher raw material, fuel and wage costs were said to be key drivers of inflation.

News of the stubbornly-high price-rises faced by Scottish firms comes ahead of tomorrow's official consumer prices index (CPI), which is expected to show a further rise in inflation.

Data released on Friday showed a surprise slowing in factory-gate inflation throughout the UK as a whole.

While manufacturers are providing a boost for the economy, new data shows that Scotland's entrepreneurs are also more confident.

The annual entrepreneurship survey from accountancy firm Deloitte today revealed more than 90 per cent of tycoons expect their firms to grow their turnover in the next 12 months.

But the firm warned that owners of larger companies were predicting higher growth than bosses at smaller businesses, indicating that access to finance is still an issue.Jim Boyle, head of entrepreneurial business at Deloitte in Scotland, said: "Last year survival and cost containment dictated the agenda for many entrepreneurs. This meant the expansion of their business - the driver of revenue growth - took a temporary back seat.

"The vast majority of entrepreneurs expect growth over the next year, suggesting that some of this cash will soon be invested in growth strategies."